Costco Plans to Accelerate Openings

ISSAQUAH, Wash. — Costco Wholesale Corp. here said Tuesday it hopes to accelerate the number of warehouse openings to 30-plus over the next few years.

“The U.S. club market is still under-stored, and there are virtually no markets in which the format would not work,” said John Heinbockel, managing director at Guggenheim Securities, New York.

Richard Galanti, executive vice president and chief financial officer, said the company expects to open 28 locations this year — up from 20 in 2011 and 16 in 2012. Asked if Costco will go as high as 6% annual growth, he said 6% "is a little high, but given that we were at 3% and are now getting toward 5%, that's a good sign.”

"We thought we'd be talking about 30 [new locations] in this fiscal year, and we have a good chance of hitting 28. Going forward, I think we would like to see the number have a 3 in front of it, and if I was a betting person, I'd give you an estimate over the next three years — fiscal 2014, 2015 and 2016 — of 33 or 34. I think we've got enough in the pipeline to be able to do that, and then we'll go from there."

Costco has already opened 14 stores this year, including five during the second quarter, which ended Feb. 17: one in Washington D.C.; two in Canada — in Oshawa, near Toronto, and Drummondville, near Montreal — and single units in central England and Seoul, South Korea, for a total of 622 locations.

Galanti said Costco expects to open 14 more units this year — five during the current third quarter and nine in the fourth quarter — encompassing four in the U.S.; five in Japan; two in the United Kingdom; and one each in Taiwan, Australia and Mexico.

Read more: Costco Endorses Sustainability Efforts

For the 12-week second quarter, net income rose 38.8% to $547 million — including a tax benefit of $62 million, or 14 cents per share, in connection with a portion of the special cash dividend paid by the company in December 2012 to its 401(k) plan participants — while sales jumped 8.1% to $24.3 billion and comparable sales increased 5%.

For the 24-week first half net income was up 34.9% to $963 million, while sales rose 8.8% to $47.6 billion and comps increased 6%.

Asked about the impact on Costco of price initiatives by Sam's Clubs, Galanti said, "I don't want to sound arrogant, but we do what we do every day, and we haven't seen any big changes in general. Direct warehouse club competition is going to be the most competitive that we have, and it hasn't changed in years. Supermarkets and other forms of retail food and sundries have less of a direct impact, with the exception of a few fresh food areas. Other than that, we haven't seen any dramatic changes.”

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